Analysts push for friendly FX to eliminate hoarding

With the commencement of the fresh policy on foreign exchange rate in Nigeria today, finance analysts and investment pundits are expecting the new move to eliminate hoarding and bring about improved economy.

The CBN Governor Mr. Godwin Emefiele, had announced the long awaited modalities for the implementation of the flexible foreign exchange policy.

The main reason for the development, according to the CBN is introduction of a two way quote, which means that buyers and sellers will state prices and quantities they are willing to buy and sell.

The CBN also maintained that the 41 items banned last year for access to forex for imports remained banned.
But some finance experts have observed that as the policy implementation takes-off today, it is expected to eliminate or reduce hoarding of the foreign currency against naira.

Reacting to the take-off of the policy today, Head, Research and Strategy, GTI Securities and Investments, Mr. Chuks Anyanwu, said the floating of the Naira will see the official rate gravitating towards the parallel market rate before finding its bearing, since the rate will now be determined by market forces of demand and supply.

According to him, “We expect this new policy to eliminate the incentive to hoard the dollar which will subsequently increase the dollar supply even from Nigerians and we expect policy on FX to eliminate hoarding.

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“We expect the high currency volatility risk to subside thereby encouraging foreign investors who have been hanging in the fringes to take advantage of the opportunities in Naira denominated instruments of fixed income and equities market.”

Also, local institutional investors like PFA’s have shown considerable apathy for equities investments as a result of the high volatility created by the exodus of foreign portfolio investors who traditional accounts for up to 55 per cent of transaction volumes on the stock market.

The National Association of Nigeria Traders (NANTS) also said that the association’s members were the most affected by the federal government’s fixed exchange rate regime.

The claim was contained in a statement issued by the association’s President, Ken Ukaoha.

“As a body whose members have borne the brunt of the fixed exchange rate regime, NANTS is gladdened by the Central Bank of Nigeria’s pronouncement to adopt a more flexible foreign exchange regime,” the statement said.

Robert Olatunde, Head of Research at Afrinvest West Africa Limited believes that what the CBN has taken the step that will free up the market from the initial control it had.

He explained that licensing some primary market dealers, who would be allowed to play in the new foreign exchange (forex) market, will enable funds to flow in, even from other autonomous sources to supply forex to the market.

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